Income tax, as defined by the dictionary, is an amount charge levied by both earned income as in wages, salaries, commission and unearned income on dividends, interest and rent. In other words, it is amount of money taken off paycheques that is directly paid to the government and is used to enhance infrastructure within the country. December 2015, as part of the Liberals campaign, Prime Minister Justin Trudeau took over Stephen Harper’s conservative government and passed Bill C-2 which as promised, reduced income tax on middle classes of Canada. This Bill became effective in January 2016, in which income tax was decreased from 22 percent to 20.5 percent almost 1.5 percent less. On average a typical Canadian family can save up too $300 per year with this tax cut. The issue with the Canadian society is that it displays huge social cleavages, as a few families are among the richest in the world while a huge portion of the society lines up at soup kitchens and food banks because they cannot afford to buy food. Almost half of the population is swamped with debts and deficits. This research paper will be examining the conditions in which this bill was initiated and passed by the parliament and how this bill displays the social cleavages present in the Canadian society.
Background of Bill C-2
The problem with the Canadian society is that just a few families are considered to be among the richest in the world while others are lining up in soup kitchens and food banks as they cannot afford to buy food. Moreover, no adult can make ends meet on minimum wage with high income taxes. A study shows that many University students emerge at their graduation with a huge amount of student debt, while others inherit huge fortunes. This society suffers from huge class cleavage and a huge gap between the three classes. Bill C-2 was first discussed during the Liberals campaign for elections of 2015, when Prime Minister Justin Trudeau took over the conservative government of Stephen Harper. During his campaign, Justin Trudeau promised to reduce income tax for middle class Canadians, and increase taxes on the upper rich class whom earn over $200,000 a year. This policy aimed to ensure middle class Canadian citizens have enough money in their pockets to save, invest, and grow within the economy. When the Bill was introduced to the parliament in December 2015, the conservatives strongly opposed the passing of it as they believed it will ruin the social hierarchy, however the majority ruled its passing. Ever since the bill was effective middle classes felt a huge difference in their savings and paycheques. In Canada, most the population is considered to be part of the middle class. This tax relief would be welcomed within the Canadian soils since an average Canadian family pays almost 40 percent of its annual income in taxes. This decision promised to decrease income taxes on middles classes from 22 percent to 20.5 percent, decreasing 1.5 percent. During the passing of this bill, the government also introduced increase tax tolls on people whom earn over $200,000 annually. This decision is beneficial to the government to as it increases their revenue by 11.9 percent. As a result, more money could be invested into infrastructure while growing a well- established middle class in the society. The Government believed that with these new tax brackets millions and millions of Canadian citizens would benefit from it and it would positively benefit their lives. A strong economy starts with building a strong middle class.
Assessing the newly implemented Tax cuts
The newly implemented bill was part of the Liberal campaign of Justin Trudeau in the elections of 2015. It was one of the promises made for the people. Canada is mainly composed of the middle class. However, the middle class is split into two class either more leaning towards the working class or part of the petite bourgeoisie as Karl Marx outlines. This is due to the reason that they tax cuts present does not permit the people to grow their savings or to grow in the social hierarchy of the class system. Moreover, in Canada the system permits and allows most of the people to feel they are part of the middle class, since material benefits are widely spread and the political system has familiarised the working-class interests along with those of other groups. This bill can be seen in a different way, it might have been implemented to close the huge social gap between the social classes being the rich upper class and the working class and building a more unified community.
This is not a very successful amendment to an existing legislative due to the fact that reducing income tax on middle class and increasing income tax on the upper rich sector of the society would cause an increase of government revenue by up to 3 billion dollars. This money is spent on the enhancement of the existing infrastructure. However, the issue with this is the fact that this would cause an increase in prices over commodities such as an increase in toll payments, parking, gas, rent. As a result, the real disposable income of one would in fact decrease because more money is put into paying for the same items purchased before the income tax cuts.
Others might argue that sine the vast majority of the Canadian population is considered to be part of the middle class, as they make enough money to pay bills and live comfortably, then this tax cut causes more benefits than harm. Many economists argue that as performative of the middle-class identity provides a clue about why tax reform lately has taken on the wave of a cultural war in Canada, one that carries moral implications and that delivers wedge issues to election platforms with stunning regularity. Furthermore, tax reform gives a person a self-identity, because when you are the class that is targeted you will start having an increase in class-consciousness, which is lacked nowadays and it grows a middle-class identity.
Bill C-2, in which a tax reform was implemented in has caused a real change for the middle-class of Canada. An average Canadian family can now save more money to invest in their future and decrease the chance of battling poverty. Nevertheless, this tax reform target a small bracket of income being $45,000-$89,000. However, critiques argue that to benefit from this tax cut you would have to ear over the top that spread, which is then considered to be fairly high income. Another way that could really benefit the economy and benefit from the tax reform is lowering the income tax on people earning from $0-$45,000 from the existing 15 percent to 14.5 percent, this would lead to a better income distribution further closing the gap between the rich and the poor. When a huge gap between the upper bourgeoisie class and the poor working class is too large then this will cause a negative effect on the economy and cause more people to face poverty. Thus lowering the income tax on the lower class can be more beneficial to the economy than the new Bill C-2 tax reform for the middle-class.
In addition, it is also argued that increasing the existing tax bracket on the upper class being the 1 percent of the economy does not change the tax revenue to the government. One of the observed disadvantages of a tax cut which is aimed specifically at a tax bracket as explained by Askari a PBO assistant, if the fact that in a progressive tax system and with the rates increasing at different levels of income, a tax cut would echo back throughout the system to taxpayers at higher levels. As he says, "Even if you have $200,000 of income you benefit because that portion of your income is taxed at that rate”. Generally speaking giving the fact that in Canada the progressive tax system exists, so it’s meant to have rising rates at different income levels, so introducing a tax break such as Bill C-2 makes things just more complicated than they already are.
Just before this bill was passed and implemented January 2016, there were four existing federal tax breaks 15 percent on taxable income of less than $44,701, 22 percent on income between $44,701 till $89,401 and 29 percent on income above that. After the tax break was granted for “middle classes” 22 percent decreased into 20.5 percent, and Canada witnessed an increase on high-income earners from 29 percent into 33 percent. This tax bracket on the middle classes saves them almost $300 per individual more if they were a family that have multiple bread earners. In fact, this measure fails to benefit the great majority of Canadians since only about a third of tax filers have an above average income. Canada Revenue Agency data, for the year 2012 demonstrated that 8.5 millions of originally 25.5 million Canadian citizens had taxable income of above $45,000 in that year, roughly the income threshold needed to benefit from new tax break. However, people who are negatively affected over the past fifteen years and more have been the middle petty bourgeoisie and the lower working proletariat class who will benefit much if at all from the new “middle class” tax cut or tax breaks. The biggest issue would be that if the new top tax rate on every high-income earner will bring enough new revenue to find the middle-class tax-cut, or will create a hole in the revenue.
The implications of tax breaks can be far from just social reasons such as eliminate huge gaps between different classes. Moreover, there could be economic reasons behind that too, for instance it increases the savings in the economy boosting investment and further developing the economy. Furthermore, if there is no difference in the tax revenue for the governments the government spending will continue to increase developing public goods. All of this would cause a boost in the economy in the long run enhancing the standards of livings and causing it to develop further. But also, if these tax breaks do affect the tax revenue the economy would go into further deficit before it is able to fix itself pulling itself into economic bloom. The motivation that tax breaks provide is to increase the efficiency and give better standards of livings for middle class Canadians. The problem with the word “middle class” is that it is too broad and to associate yourself with the middle class can be a generalization. The word middle class can either refer to the income part or the social status or even where a person sees themselves in.
The class theory
What is the middle class and what is considered to be part of the middle class? Firstly, it is important to mention that the idea of social division or social classes is rooted back to Karl Marx in the nineteenth century. As he believed that “every capitalist economy would produce a class system consisting primarily of the bourgeoisie, the owners of the means of production and proletariat, the workers.” Karl Marx constantly criticized the idea of a capitalist country and religion within politics, however our focus throughout this research paper is the idea of the class struggle and the class distinction present in every society back then and nowadays. This Marxist idea has been around for decades and it still could be applied to our societies nowadays. It is well noted that every political society and every country portraits class struggle and the hierarchy of social classes. Usually in many societies the gap between the upper bourgeoisie class and the lower working class is too large that it oversees and overshadows the class in between known as the middle class. When we define the middle class, we ought to mention it is the class in between which consists of a typical average working family that have a child and make enough to support their living but not to save and invest in the future. Most Canadians, when asked about their social belonging and to which class they think they belong too, they tend to answer middle class, most of them would not actually belong to it. On the global scale and according to researchers’ middle classes are individuals that earn as much as $10 to $100 per day. However, what is considered to be middle class in Canada can be different than what is considered to be middle class in America or the Middle East for instance. In the USA, the middle class consists of people earning around $35,000 and $75,000 per year. By this measure at least one quarter of Canadians are not actually considered to be middle class but rather be part of the working class.
The foundation of the class theory is built on ideas that originate from Karl Marx. He believed that in a purely capitalistic system there are two existing social classes, the bourgeoisie also known as the upper rich class and the proletariat class also known as working class. Moreover one class that Marxist believed would banish with the development of capitalism is the middle class. The middle class or the “petite bourgeoisie class” are small owners who still work their own means of production or own workers. Members of this social class must still work to survive, as so they have dual existence, as small property owners and as workers. This dual role in the society caused their interests to be divided, usually wishing to preserve their private property and property rights but with interest often opposed to those of the capitalist class. Marxists’ theorists expected this class to disappear with the passing of time and with the development of capitalism believing that all members of the state will either move to the bourgeoisie class or to the working class, depending on how successful they are. The new middle class was unforeseen in the 1800s. A new school of thoughts was developed after the emergence of the middle class in the world, in which such individuals cannot be classified as bourgeoisie class nor be part of the working proletariat class, this was known as the neo-Marxists. The neo-Marxists commonly divide individuals and families into the upper, middle and working class, based on such intersessions between the classes are less clear-cut. When we are classifying an individual into the social hierarchy the simplest way is to look at their income. There’s an obvious division in Canada between the poor and the rich.
Expanding on the idea of the petty bourgeoisie or the petite bourgeoisie or the middle class, according to Marx it is the focal idea of his social class theory. Moreover, according to Marx with the emergence of capitalism “the real lever of overall process is increasingly not the individual worker” but the “collective worker formed out of the combination of several individual workers”. Poulantzas interprets Marx’s words in the sense that what Marx calls to be the collective worker is the combination of the working proletariat class together becoming a manager, teacher, engineer. This way they are becoming more than just an employee but yet are not responsible for the means of production forming what is called as the middle petty bourgeoisie class. These middle classes or the petty bourgeoisie are considered to be limited but not productive workers. These middle classes are wage earners they do not produce extra or new value that may increase form thus they are not considered to be part of the working class. The barrier between these petty bourgeoisie and them becoming part of the bourgeoisie and the upper class is their wages and what they pay themselves after deducing their actual expenses as argued by Karl Marx.
Both Marxists and neo-Marxists analysts believed in the fact that with the development of capitalism and the spread of democracy the middle petty bourgeoisie class would disappear. In an attempt to bring this model closer to reality and placing it into context the liberal party themselves decided to give middle classes so tax breaks in order for them to save more money and invest in their futures in this way they are either bringing them closer to the upper bourgeoisie class or closer to the proletariat class depending to how successful they are. The more the tax breaks or tax cuts are increased the more individuals in Canada have money to save and invest causing them to grow in the economy and the society going up the social hierarchy.